Speculative penny stocks outperformed during the big market rally that started in April 2020. The surge of such stocks was driven by social media which created a bubble. Of course, the easy money provided by the Fed contributed to excessive speculation.
Investors’ sentiment has changed significantly since the beginning of 2022. With multiple economic challenges facing the U.S., investors have shifted their focus to fundamentally strong stocks.
Although it seems difficult to beat the market under these conditions, it’s not impossible to do so. For investors, the best strategy, in my view, is to remain overweight blue-chip stocks. At the same time, investors should consider buying beaten-down growth stocks and speculative penny stocks.
Even in today’s weak market, selective penny stocks have the potential to deliver multi-fold returns in the next few quarters.
| BORR | Borr Drilling | $3.96 |
| SNDL | SNDL | $2.67 |
| SOLO | Electrameccanica Vehicles | $1.45 |
Borr Drilling (BORR)
Despite the economic challenges, oil prices have not dropped sharply. Geopolitical tensions and a tight supply scenario have contributed to the strength of energy prices.
Borr Drilling (NYSE:BORR) is an attractive penny stock from the oil and gas sector. BORR stock was trading below $1 towards the end of 2020. However, the stock surged to its highs of $7 in June 2022. After its recent decline, the stock again looks attractive around $4.00.
It’s worth noting that Borr Drilling recently raised $275 million from selling additional shares of its stock. Even though that move diluted existing shareholders, the stock has remained relatively resilient.
Borr has 20 contracted rigs with three available for drillers and another five under construction. As new rigs are deployed and contracted, its cash flow outlook is likely to become more certain.
Further, if oil prices remain around $90 to $100 per barrel, the prices of its new contracts will be robust, enabling the company’s EBITDA margin to increase.
SNDL (SNDL)
Cannabis stocks have been depressed, largely due to regulatory challenges. However, if cannabis is legalized in the U.S. and Europe in the next 12-24 months, several of the sector’s stocks may deliver multi-fold returns.
SNDL (NASDAQ:SNDL) is among the speculative penny stocks that’s worth considering. After a decline of almost 45% in the last six-months, the stock seems attractive.
SNDL is the largest private-sector distributor of liquor and cannabis in Canada. SNDL also has its own brand portfolio of cannabis products. Besides having a strong retail footprint, the company’s investment division is likely to create value in the long-term.
Currently, SNDL has $689 million of capital deployed in equity and credit investments. With zero debt and $356 million of cash and equivalents, SNDL is well-positioned to grow aggressively.
SNDL has a strong presence in Canada. With its investments in other cannabis firms, the company stands to benefit once the cannabis market gains traction in U.S. and Europe.
Electrameccanica Vehicles (SOLO)
Given society’s focus on electric vehicles, I would consider buying an EV stock that’s also a speculative penny stock. Electrameccanica Vehicles (NASDAQ:SOLO) stock is an attractive pick at its current level just under $1.50.
Electrameccanica is a Canadian designer of electric vehicles. The company’s first EV model, the Solo, has a starting price of $18,500. Further, its cargo model, designed for delivery companies, is priced at $24,500. With its attractive pricing, the company seems positioned to sell many EVs.
For Q2 2022, the company manufactured and delivered 193 and 68 Solos, respectively. It’s too early to expect the company to generate positive EBITDA.
However, if Electrameccanica’s vehicle deliveries accelerate, SOLO stock is likely to surge. I am particularly bullish on the company’s cargo model, as a big order of those EVs by a large company can be a game-changer for SOLO stock.
From a financial perspective, the company reported cash and equivalents of $176.3 million as of the end of Q2. Since Electrameccanica has an asset-light business model, it has enough funds to support its business for the next 12-months.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.